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Shareholder Sues Bank Directors Over Alleged Fraud

April 16, 1996

FAIRFAX, Va. (AP) _ Signet Banking Co.’s directors were negligent and should reimburse the bank for money allegedly lost in a fraudulent loan scam, a shareholder lawsuit claims.

A former Philip Morris employee is accused of defrauding Richmond-based Signet, NationsBank of Charlotte, N.C., and other banks of millions of dollars.

``This action arises from Signet’s making of an $81 million loan, in breach of its own policies and procedures, without adequate security, to an individual who created a scheme to defraud Signet,″ the suit filed by shareholder Eugene P. Gold said.

The suit filed April 1 in Fairfax County Circuit Court accuses the 12-member Signet board of directors of ``gross recklessness and waste of corporate assets.″

Norwood H. Davis Jr., one of the board members, said Tuesday he cannot comment on the suit in detail.

``We as directors will defend the suit aggressively and are confident when the facts are fully understood at the appropriate time, the case will be dismissed,″ Davis said.

Signet spokeswoman Teri Schrettenbrunner said she had not seen the lawsuit and could not comment.

The directors of the Richmond-based bank knew or should have known about problems at the bank ``but failed to take any reasonable or adequate steps to remedy the known problems,″ the suit said.

The bank could sue its own directors on the same grounds but almost certainly wouldn’t, a lawyer for Gold said Tuesday.

``It takes a shareholder suing on behalf of the bank,″ lawyer Steven J. Toll of Washington said. ``The bank and the board are very heavily intertwined.″

The suit asks that the directors pay whatever the bank lost in the alleged fraud. Gold also asks for his court and attorney costs.

The FBI says Edward Reiners got the loans by convincing Signet and the other banks he still represented Philip Morris, which needed computer equipment for a top-secret cigarette research project.

The project was fictitious, and Philip Morris did not know of the scheme, the FBI said. Reiners and an alleged accomplice, Judy Bachiman, have been charged with bank fraud.

Signet said it approved $81 million in loans for Reiners in 1993, a year after he was fired by Philip Morris.

The bank should have confirmed Reiners’ employment and run other security checks, the suit said. The loan was Signet’s largest on the books and exceeded the bank’s internal limit for any one loan, the suit said.

The FBI arrested Reiners and Ms. Bachiman on March 19. Authorities began investigating Reiners after the Long Term Credit Bank of Japan questioned a loan document, and the other banks became suspicious.

Last week, Signet adjusted its 1995 earnings to account for a $35 million pre-tax charge it will take in connection with possible losses related to the case.

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